Capital substitution of foreign profits is not taxable remittance when securities are only reinvested, not brought in as income.

Accumulated foreign profits that have already been converted into capital assets are not taxable as remitted income when those assets are moved into the taxable territory as part of a contemporaneous change of investment. The sale of Mysore securities and purchase of Travancore securities was treated as a substitution of investments, with the proceeds not used for the Madras business and no device shown to bring income into British India. On those facts, the movement represented capital rather than money's worth assessable as foreign profits, so any remittance was not chargeable as income.

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Issues: Whether the sale of Mysore securities and the contemporaneous purchase of Travancore securities amounted to a remittance of unassessed foreign profits to British India, and if there was a remittance, whether it was a remittance of capital.

Analysis: The funds had been earned and accumulated outside the taxable territories and had already been invested in securities, so the profits had been capitalised. The securities were sold only to enable reinvestment in another class of securities, and the sale proceeds were not used for the business of the firm in Madras. On the findings as they stood, there was no device to bring money into British India for business use. Even on the footing that the securities continued to belong to the partners, what was brought into Madras was capital and not income, and the movement of the securities for sale and reinvestment did not amount to a remittance of money or money's worth assessable as foreign profits.

Conclusion: The remittances, if any, were remittances of capital and not assessable income, and the question referred was answered in the negative in favour of the assessee.

Ratio Decidendi: Where accumulated foreign profits have been converted into capital assets and the transfer of those assets into the taxable territory is only part of a contemporaneous substitution of investments, the transaction is not a taxable remittance of income but a movement of capital.

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